Indonesian central bank says no plan for capital controls

[JAKARTA] INDONESIA'S central bank has no plan to implement capital controls to support the rupiah during periods of global market volatility, its governor Perry Warjiyo told a media gathering in response to a question about the possibility of such measures.

Alongside other emerging markets, Indonesia has seen an outflow of funds as US assets become more attractive due to rising interest rates.

The rupiah has been among the worst performing in the region while Indonesia's main stock index slumped and yields on its sovereign bonds rose across the board. Its markets have since pared some losses with investors returning to buy bonds while the rupiah has strengthened.

Mr Warjiyo said emerging markets with sound economic policies should have the option to manage capital flows as part of the country's macroeconomic policies. "This should not be a substitute for macro policies but capital flows management can be done if an emerging market has applied fiscal discipline and prudent monetary policy," Mr Warjiyo said. Such measures, if taken, should be targeted and have a specific time period, he said.

Emerging markets saw a combined US$12.3 billion of outflows in bonds and stocks last month, according to data from the Institute of International Finance.

Bank Indonesia raised its benchmark interest rate for the second time in two weeks at an out-of-cycle policy meeting on May 30, after hiking rates earlier that month. In total, BI has raised its key rate by 50 basis points in May, bringing it to 4.75 per cent.

REUTERS